TNAG-1876-FCO40-2667-Relations-between-Hong-Kong-and-Japan-1989 — Page 73

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reached US$9.99 billion last financial year, a larger surplus than Japan maintains with any other trading partner excepting the United States, and 50% larger than it was only two years ago.

Linked to this trade imbalance is the imbalance in investment in both the industrial and service sectors. For every dollar invested in Japan by Hong Kong firms, $38 are poured into the Hong Kong economy by Japan, creating what has been called an investment surplus of nearly US$6 billion. One in every five Japanese investors is a manufacturing firm and Japan is, according to the latest figures, now the leading manufacturing investor in Hong Kong, having overtaken the United States in 1987. Trading and financial firms form the bulk of Japanese investment, and the pace of Japanese investment here too has been high. As with every single Asian country except Brunei, the value of annual Japanese investment in Hong Kong rose dramatically between 1986 and 1987, doubling to over a billion US dollars. Over the last year, as investment in certain other East Asian economies has flagged, Hong Kong has continued to be a focus of interest, accounting for 85% of last year's growth in Japanese investment to Asia.

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Broadly speaking the Japanese exporters responsible for the trade deficit divide into three categories: those using Hong Kong as a gateway to China; those supplying parts to firms in Hong Kong for re-export to Europe and the US; and those supplying consumer goods to the Hong Kong market. The first of these has grown most rapidly in recent years. Over the last nine years Japanese exports to China through Hong Kong have grown over three hundred fold in Hong Kong dollars, and now represent about a quarter of all Japanese exports to China. by the same token they are the ones most likely to feel the effects of any relapse in the Chinese economy as a result of recent developments.

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Most of the second category of exporters supply those Japanese manufacturing firms with investments in Hong Kong. vast majority of these companies produce with the American or European markets in mind, and have established factories not simply to benefit from the low cost of labour in the region but also to avoid anti-dumping and local content regulations in their eventual markets. For example both Mita (producers of copying machines) and Uniden (who manufacture car phones) have set up in Hong Kong for precisely these reasons. In 1986 Uniden shifted 90% of production across the border into China, and their Managing Director tells us that most Japanese manufacturing investors with OECD markets in mind have now adopted this structure (though most also hedge their bets by formally subcontracting the work done over the border rather than making an investment in plant themselves!).

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